The BIS and The GLD – Craig Hemke (11/03/2019)

More proof of Central Bank gold price manipulation or simply an odd coincidence?

If you’re an avid follower of the precious metals, then you no doubt noticed the tremendous rally that prices experienced over the 100 days from November 14 through February 20. Global equity market weakness, falling interest rates and a change in Fed policy all combined to send the COMEX gold price higher by 11.6%, from $1210 to $1350 over this time period.

With interest in the sector surging, this same November-January period saw the stockpile of gold held in the inventory of the world’s largest gold ETF, the GLD, grow as well. On November 16, 2018, the GLD registered a total inventory of 759.68 metric tonnes, but by January 29, this total had grown to 823.87 metric tonnes. This is precisely as you might expect, given that higher prices generally lead to improving sentiment and demand for gold in all its forms.

But then something curious happened. Even though price continued to rally into February, the total inventory of the GLD began to decline. In fact, by the time of the most recent price peak on February 20, the total GLD inventory had already fallen by over 27 metric tonnes. As the month continued and prices began to correct, the withdrawals from the GLD accelerated and the total inventory registered a February decline of 51.41 metric tonnes. Another 5.87 metric tonnes were withdrawn on March 4, bringing the total inventory down 57.28 metric tonnes from the January 29 peak and nearly all the way back down to where it was when the price rally began back in November. See below and remember that number: 57.28 metric tonnes.

That the GLD inventory began to fall three weeks before price was unusual enough. However, when the February statements of account were published by the Bank of International Settlements, things got even more curious.

We were first alerted to this last week by Robert Lambourne, who published his findings at GATA. Many thanks to Robert for noting this information, and you can read his summary here:http://www.gata.org/node/18924

To wit, Robert noticed that the BIS had placed an additional 56 metric tonnes of gold swaps into the market in February. A total of 56 metric tonnes of new shorts? Hmmm. That’s interesting.

By Robert LambourneThursday, March 7, 2019

The recent monthly statements of account published by the Bank for International Settlements indicate that the bank is still actively trading gold swaps, which the bank uses to gain access to gold held by commercial banks.

There is not enough information in the monthly reports to calculate the exact amount of swaps, but based on the information in the BIS’ just-published statement of account for February 2019—

—the bank’s gold swaps are estimated to be 303 tonnes compared to 247 tonnes at January 31, 2019, an increase of 56 tonnes. This compares to an estimated holding of 275 tonnes at December 31, 2018, and estimates of 308 tonnes in November, 372 tonnes in October, 238 tonnes in September and 370 tonnes in August 2018.

The GATA post continues:

More background on the bank’s medium-term history of using gold swaps is available here:

The former executive wrote: “Effectively this process created a supply of ‘paper gold’—sometimes but not always marked to market—that had a depressing effect on the gold price.”

So the GLD sees a drawdown of 57 metric tonnes over the same time period that the BIS created 56 metric tonnes of new gold swaps. And, as noted by Bob Lambourne in his GATA article, these swaps allow “the bank to gain access to gold held by commercial banks.”

Again, this is interesting. Why? Because the only entities that are allowed to access and withdraw gold from the GLD are called its “Authorized Participants”. And who are these APs? Posted below is a snapshot of the GLD prospectus. The APs are primarily the big commercial banks that also operate as Bullion Banks for the LBMA.

In a follow-up email conversation I had with Bob over the weekend, he further noted this history and background of the BIS and their gold activities:

Do you recall that we <he and Chris Powell> discussed a couple of months ago whether the source of (paper) gold swapped with the BIS was ETF gold where the bullion banks acted as custodian? There’s nothing in the BIS reporting that I’ve found which would confirm that this is the case, but it seems highly plausible to me. From a custodian’s viewpoint, having the BIS as a counter party must be easy to justify.

We can be almost 100% certain that the gold used for swaps doesn’t come from central banks, and I’m reasonably confident that it’s not IMF gold, as I believe that the BIS would have to make some form of related party disclosure if it was using IMF gold. However, as explained below, there is some scope for the BIS and IMF to mislead about their gold holdings.

So given that the first swaps in 2010 were confirmed to be with commercial banks, this seems the most likely source. I doubt if any gold miner would be dealing in any size with BIS swaps, as it would need to be disclosed in their financial reporting and the total amounts are large. I’m unaware of any miner sitting on lots of paper gold or bullion, but I’ve not checked recently.

Although the BIS tries very hard, in my view, to be as unhelpful as possible about their gold disclosures, it is useful that the BIS act as the setters of standards for financial businesses, because they then have to comply to an extent with the standards that they create. This means that the BIS gives out more information than the IMF, for example, on their gold positions.

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